DEALMAKER GUEST BLOG -- DENISE CARKHUFF

Selling your company? Invest in the right packaging

Denise Carkhuff is a partner at Jones Day. She has more than 17 years of merger and acquisition experience with a focus on private equity.

Sellers of companies should observe and learn from toddlers opening presents on Christmas Day.

They are obsessed with the wrapping paper — so obsessed that they are distracted from the contents of the gift. From my experiences, the right packaging also can increase purchase price received in a sale process, preserve the purchase price post-closing and prevent the sale from tanking.

Your advisers are the first layer of wrapping. Having top-notch investment banking, law, accounting and other advisory firms on the front lines representing you to the buyer is essential. You need seasoned teams from credible and respected firms that are truly focused on your deal. These teams will be who the buyer sees and judges. They will reflect on you, the seller.

The process is part of the packaging. Once you have hired the right advisers, it is important to listen to and trust them. This seems like simple advice, but it is the most common mistake I see made by sellers. It is hard for business owners who are accustomed to being in the lead chair to take a backseat to the advisers.

It is a buyer's dream to get direct access to the business owner, to develop a rapport, to get the seller to start empathizing with the buyer (particularly when the seller also is rolling some of his equity into the buyer entity). Business owners should hide behind their advisers and allow their advisers to be the “bad guys.” The advisers know all the tricks buyers will try to pull.

You will get a much better deal if you let your advisers do the job you hired them to do. Trust them on content and trust them on timing. If they ask you to go quiet, go quiet. If they ask you to go quickly, go quickly. Pausing at the right time can lead to an increased purchase price. Moving quickly at the right time can feed momentum and preserve a deal that otherwise might die.

Package and box your sins. You always must know more about your company and its little (or big) problems than the potential buyers. Once you get your arms around all the “issues” with your company, you can strategize a plan with your advisers on how and when they will be introduced to bidders. Being on top of an issue can prevent a hit to purchase price or the request for a seller to reimburse the buyer for any and all losses arising from a troubling issue discovered by the buyer in its diligence.

Looking organized and “clean” will give buyers confidence in you and keep them from digging deeper. Before you start your sale process, take the time (with the guidance of your legal adviser) to clean up your company and, for example, update your record books, employment and option documentation (i.e., make sure you are 409A compliant), update expired contracts, obtain missing signatures to contracts and get old liens that relate to retired debt released.

Let's take a company tainted by asbestos as an example. If you want to increase your chances of selling a company with asbestos litigation, you need to make it easy for the buyer to understand the facts and box the risk. I have seen many buyers walk away from targets with asbestos issues because their first inclination is to run. If the target doesn't quickly put the potential buyer's mind at ease, the buyer is a goner.

Make it easy for them. Box it up and put a bow on it. Lay out the structural, contractual, legal, factual and realistic reasons why a buyer should not be concerned. Don't make a buyer sift through piles of documents in order to make its own prediction of the risk. Hire your own consulting and legal teams to get as smart as possible and put together a memo that spoonfeeds the buyer.

The above advice will help you put the best face on a business you desire to sell, and the right packaging will result in getting and maintaining the right price.

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